2023 (9) TMI 887 - AT - Income Tax

Rectification u/s 154 - Justification of expenditure w.r.t. head office expenses u/s 37(1) vis-a-vis the receipts of the assessee - HELD THAT - On perusal of the order of the Ld. CIT(A), we find that he has given a clear finding that the sum represents the allowable expense of the assessee and not its alleged undeclared income . This finding of the Ld. CIT(A) remained uncontroverted before us. We concur with the findings of the Ld. CIT(A). Further, the issue of allowability of the said expense was the subject matter of consideration in quantum appeal and therefore the Ld. CIT(A) has rightly not considered it in rectificatory proceeding. For the reasons set out above we do not find any substance in the appeal of the Revenue which we reject.

Summary

Issues involved:
Rectificatory order u/s 154 of the Income Tax Act, 1961 regarding the treatment of expenses as income for Assessment Year 2014-15.

Summary:

Issue 1: Treatment of expenses as income
The appeal was against the order of the Ld. Commissioner of Income Tax, (Appeals) regarding the treatment of expenses amounting to Rs. 2,25,29,243/- as income of the assessee. The rectificatory order under section 154 was based on an audit objection resulting in the addition of the said amount to the income. However, the Ld. CIT(A) held that the expenses were incorrectly treated as income and explained that the remittance was an expense of the assessee, not income. The AO had added back the amount to the income, which was contested by the appellant. The Ld. CIT(A) accepted the appellant's explanation that the amount was expenditure of the appellant/Indian PE and not its receipts, which was supported by a reconciliation submitted to the AO. The Tribunal concurred with the Ld. CIT(A)'s findings that the amount represented the allowable expense of the assessee, not undeclared income, and rejected the appeal of the Revenue.

Issue 2: Procedural irregularities
The Tribunal noted that the rectificatory order was not to rectify any mistake apparent from the record, as required by section 154 of the Act. The notice for rectification was issued without providing a reasonable opportunity to the assessee to be heard, violating the statutory requirement. The Ld. CIT(A) had given a clear finding that the disputed amount was an allowable expense of the assessee, which was not contested before the Tribunal. As the issue of the allowability of the expense was already considered in the quantum appeal, the Ld. CIT(A) rightly did not revisit it in the rectificatory proceeding. Therefore, the Tribunal dismissed the appeal of the Revenue.

This judgment clarifies the treatment of expenses as income in a rectificatory order under section 154 of the Income Tax Act, 1961. The decision emphasizes the importance of correctly categorizing expenses and income, highlighting procedural requirements and the need for a fair opportunity for the assessee to present their case.